Public-private arena deal expected

Hockey just tip of the iceberg for project

Possible sites for Ilitch
development

Here are the three rumored locations for the
Ilitch family's proposed multi-use arena and residential,
retail and office space district. View The Ilitches
downtown in a larger map Financing
NHL arenas

Here are details on how the most recent
National Hockey League venues were financed:

Barclays
Center

•
Teams: Brooklyn
Nets (NBA), New York Islanders
(in 2015)

•
Year opened: 2012• Cost: $1
billion

•
Financing: A $511 million bond
sale, $400 million (over 20 years) in naming rights from
London-based Barclays PLC,
$171.5 million from the city for land and infrastructure, and
additional funding from Nets majority owner Mikhail
Prokhorov, the latest being a $77 million loan.• Owner:
Cleveland-based developer Forest City
Enterprises

•
Seats: 17,732 for basketball and
14,500 for hockey

•
Note: The Islanders announced in
October they will sign a 25-year deal to move to the arena
after playing at 16,000-seat Nassau Veterans
Memorial Coliseum since it opened in 1972. The
Barclays Center wasn't designed for hockey, and it will have
the NHL's smallest seating capacity.

Consol Energy
Center

•
Teams: Pittsburgh
Penguins, Pittsburgh Power
(arena football)

•
Year opened: 2010• Cost: $321
million

•
Financing: Local gambling taxes
and $10 million from the state, $5.5 million from the stadium
authority and a $15.5 million lump sum from the Penguins in
addition to a $4.2 million annual payment over 30
years.

•
Owner:Sports and
Exhibition Authority of Pittsburgh and
Allegheny County

•
Owner: Nationwide and minority
owner The Columbus Dispatch sold the
building to the Franklin County Convention
Facilities Authority in February.• Seats:
18,144

• Note:
The arena is the centerpiece of the $1
billion, 75-acre mixed-use Arena District that includes
office, retail, restaurants and entertainment space.

Source: Crain's
research

The Ilitch family lifted the veil last week, if just slightly, to expose some of its thinking on financing for a new downtown arena for their Detroit Red Wings.

Not surprisingly, public money is part of the equation for what the Ilitches are estimating to be a $650 million multiuse event center and long-term ancillary development that would include residential, retail and office space -- along with thousands of predicted jobs and more than a billion dollars in economic impact -- in a to-be-determined area in downtown Detroit. (See map.)

The family issued a statement last week discussing the first real details of the proposal publicly as part of an effort to support legislation that would permit economic development taxes already on the books in the city to be used for the project.

Nothing was said about what exactly $650 million buys, how much money the family would invest, or about other public or private financing mechanisms they're mulling.

The Ilitches have said for years they want a new, more lucrative arena for the Wings to replace aging city-owned Joe Louis Arena. But they are extremely tight-lipped on details other than they want it somewhere near their other downtown investments. Those include the Fox Theatre, Comerica Park and MotorCity Hotel and Casino.

Economic development and sports stadium insiders say a variety of funding options exist, and each project tends to be tailored to local conditions.

There also is a blueprint readily available that can provide clues to what they might do: Comerica Park, home of the Ilitch-owned Detroit Tigers, was built for $300 million with a mixture of public and private money, as was adjacent $500 million Ford Field for the Ford family's Detroit Lions.

Ballparks past, P3 future?

The Ilitches paid for most of Comerica Park but relied on $80 million in public bonds that are being repaid by a county use tax.

Another $80 million assembled by the city of Detroit, Wayne County, Detroit's Downtown Development Authority and the Michigan Strategic Fund was used for supporting infrastructure, such as water and sewer lines, for the site of the two ballparks.

The stadiums are owned by the six-member public Detroit-Wayne County Stadium Authority and subleased to Detroit's Downtown Development Authority, which in turn has operating contracts with the teams to run the ballparks. There's been no discussion, at least in public, of the stadium authority being involved or if the Ilitches want to own the new arena outright.

The family's statement last week indicated they're interested in some type of public-private partnership deal to get the project built. Again, no details have been disclosed, and the Ilitches are declining to say anything else.

HIGH IMPACT?

The estimated number of jobs and
economic impact from the proposed downtown Detroit events
center and first phase of ancillary development, as presented
to the Michigan Senate last week:

• 8,300 construction jobs • $300 million total economic impact within
Wayne County

• $1 billion total economic
impact within state

Second phase estimates for a 20-year
build-out:

•
$1.1 billion in direct expenditures

•
$780 million in indirect effects

Ongoing impact estimates:

• 1,100
permanent jobs

• $210 million in annual
economic impact

Source: University of
Michigan professor Mark Rosentraub. The methodology used to
generate the numbers was not
provided.

"P3s (public-private partnerships) are very common for the development of multiuse facilities and districts," said Lisa Niscoromni, senior associate at the Detroit office of Minneapolis-based Hickey & Associates LLC, which specializes in site selection and incentives. She worked two years in Wayne County's economic development office, until leaving for her current job in March.

Typically part of such partnerships are low interest bonds, sales and hotel tax increases, public infrastructure funding, admissions/parking taxes, assistance with property acquisition, utility assistance, tax abatements, and state and local grants, she said.

"The availability of certain partnership opportunities can depend on property ownership, proposed use, and other factors," she said.

Outside of the DDA, there's little the cash-strapped city can directly offer. The state and Wayne County are the more likely sources of any additional direct or indirect subsidies for the project.

Photo

Ficano

"We've been working with the Ilitch family the past couple of years," Wayne County Executive Robert Ficano said. "Everybody's been looking at the finances. It's premature to say what our role would be."

He did say the county has discussed "two or three options" on financing for the project, but declined to discuss specifics. He also said negotiations with the state could be a possibility, without offering details.

Specifically how the state's economic development agency, the Michigan Economic Development Corp., will be involved with the project remains unclear, and it's not saying anything else.

Other money

The Ilitches are expected to put up some portion of the project's costs themselves, and they have a notable fortune: They've stated that their companies, with the Detroit-based Little Caesars pizza chain as the backbone, generated more than $2.4 billion in revenue last year, but they don't disclose details.

They could seek other outside private investment to allay costs. It's common for teams to sell naming rights for the venue, or portions of it, and to craft marketing and media deals that provide steady income streams.

One name tied to the unsuccessful Ilitch bid to buy the Detroit Pistons in October 2010 was Sam Simon, owner of Taylor-based fuel distributor Atlas Oil Inc. Simon is a friend of the Ilitches. His annual revenue from Atlas is about $1 billion.

Mike Evans, Atlas executive vice president of business development, could not be reached late last week.

Another possibility for investment is Ada-based Amway Corp.

In September 2011, the Wings inked a deal with Amway, the network-based direct-marketing giant, to become the team's first-ever presenting team sponsor. Financial terms were not disclosed, but that contract is thought to be a two-year, seven-figure deal.

The company says it isn't involved in the project.

Amway has a number of other pro sports investments, such as holding the naming rights of the Amway Center, home to the National Basketball Association's Orlando Magic.

Mixed use, mixed history

Recent hockey arena proposals have had a mixed history of delivering on promises -- or happening at all, in the case of the New York Islanders.

Voters in Long Island's Nassau County in August 2011 rejected a ballot proposal that would have authorized $400 million in general obligation bonds to replace county-owned Nassau Veterans Memorial Coliseum that opened as the Islanders' home in 1972 at a cost of $31 million.

Team owner Charles Wang, the billionaire co-founder of CA Technologies, announced in October that the team would instead move in 2015 to the new $1 billion Barclays Center in Brooklyn, home to the NBA's Nets.

The arena is part of the 22-acre, $4.9 billion Atlantic Yards development, which will include more than a dozen residential towers and middle-income housing, built largely on formerly blighted property, some seized through eminent domain. The project has faced court challenges and been slow to come to fruition.

Brooklyn is just the latest project to see slower-than-promised ancillary development.

The St. Louis Cardinals proposed a $600 million "ballpark village" concept in 1999 as part of the new Busch Stadium, which opened in 2006. Ideas for it have included restaurants, retail, a museum, a hall of fame and even a museum.

The project has been delayed repeatedly, with $100 million being approved by the city in June to aid construction. A proposed November groundbreaking didn't happen.

Promised development of residential, retail, office space and bars around the Washington Nationals' $611 million Nationals Park didn't spring up as predicted when the stadium opened in 2008 in a blighted area. It's been more of a slow trickle.

New York-based journalist Neil deMause, co-author of the book Field of Schemes,which takes a critical look at public funding for pro sports stadiums, said ancillary development around a venue is almost always part of any new sports venue proposal.

"It distracts people from the stadium subsidies," he said. "It's easy for them to build the arena, and later say the other stuff will get built when the market supports it."

DeMause did note that arena developments in places like Columbus have been successful.

Nationwide Realty Investors, the real estate development arm of Nationwide Mutual Insurance Co., had spent $544 million in direct investment by 2008 on the 75-acre mixed-use around the Nationwide-owned (and entirely funded) Columbus Blue Jackets venue since 2000, according to an economic impact report from the John Glenn School of Public Affairs at Ohio State University.

The area, known as the Arena District, contains 1.5 million square feet of commercial real estate, restaurants and entertainment space and 600 apartments. About $750 million in almost entirely private funding has been invested in the district, with millions more planned.

Employment jumped almost 200 percent in the district's first six years, to almost 5,500 full- and part-time jobs, the report said.

Could something like that work in Detroit? It's much too soon to say, deMause said.

"It's a risk. You don't know. Detroit, the only urban corridor no one was moving into, is finally getting interest back," he said.